The proverbial three-legged stool (i.e., Reliability, Affordability, and Sustainability) essential to the well-being of our economy and national security is facing serious challenges as a new year begins. The North American Electric Reliability Corporation (NERC) just released its 2024 Long-Term Reliability Assessment (LTRA). The LTRA leaves a clear impression that electric reliability is being undermined not only by “explosive” demand growth, but by the lack of accredited capacity additions to replace the many fossil-fuel retirements that have occurred in the past several years (see article 1 below). The projected shortages are despite recent decisions by several utilities to delay fossil-fuel plants that were slated for early retirement.
Affordability is also being challenged. Recently, both MISO and the Southwest Power Pool (SPP) have announced record setting ($30 billion and $7.7 billion, respectively) plans to enlarge and make their grids more resilient. These investments will significantly increase transmission rates throughout the MISO and SPP regions. Transmission has become a major driver for higher electricity rates. However, because the underlying load forecasts may have pre-dated the now expected “explosive” demand growth, the price tag may be much higher, particularly if significant cost over-runs occur, as has been the experience in past expansion projects (see article 2 below).
To make matters worse, GE Vernova told analysts and investors that “We’re already into selling the last of our slots for gas in 2028 right now. We’re already selling transformers and switch gears into 2028 and 2029 very quickly with the market opportunity in front of us.” (see article 3 below) Assuming that other equipment manufacturers are similarly booked, the lead time to resolve projected capacity shortages may be extended, not to mention the upward cost pressures from high demand.
These developments signal a dire need to refocus utilities, transmission owners, and regulators to prioritize reliability and affordability if we are going to keep the lights on and our machines running in 2025 and beyond.
DIVE BRIEF
‘Explosive’ demand growth puts more than half of North America at risk of blackouts: NERC
“Simply put, our infrastructure is not being built fast enough to keep up with the rising demand,” said John Moura, NERC’s director of reliability assessments and planning analysis.
Published Dec. 18, 2024
Robert Walton Senior Reporter
Dive Brief:
- More than half of North America faces a risk of energy shortfalls in the next five to 10 years as data centers and electrification drive electricity demand higher and generator retirements threaten resource adequacy, the North American Electric Reliability Corp. said in a 10-year outlook published Tuesday.
- Summer demand is forecast to rise by more than 122 GW in the next decade, adding 15.7% to current system peaks, according to the reliability watchdog’s 2024 Long-Term Reliability Assessment, or LTRA. NERC said its 10-year summer peak demand forecast has grown by more than 50% within the last year.
- Federal policies are needed to support energy production, manufacturing and infrastructure, National Rural Electric Cooperative Association CEO Jim Matheson said in a statement. Grid officials have been sounding the alarm around system reliability for years and the most recent LTRA “continues painting a grim picture of our nation’s energy future and growing threats to reliable electricity,” he said.
Dive Insight:
NERC has previously warned about the pace of generator retirements and the changing resource mix, but now says the situation is becoming more urgent as demand forecasts surge and resource additions slow.
The LTRA recognizes confirmed generator retirements of 52 GW by 2029 and 78 GW over the 10-year assessment period. However, announced retirements by generators that have not begun the formal deactivation processes drive the total expected retirements to 115 GW by 2034.
Those retirements are largely being replaced by variable generation, NERC said.
Peak reserve margins fall below the levels required by jurisdictional resource adequacy requirements in the next 10 years “in almost every assessment area, signaling an accelerating need for more resources,” according to the report.
However, “in the face of these pressures … we’ve observed in this year’s LTRA that the resource additions are slower than the industry projected,” Mark Olson, NERC’s manager of reliability assessments, said in a Tuesday call with reporters. “The overall resource capacity on the system has grown slightly since the last LTRA, but it is significantly less than what the LTRA had projected the system would be growing to, and that creates concerns.”
The Midcontinent Independent System Operator faces a high risk beginning next year, with energy shortfalls in some areas possible during normal peak conditions. “Resource additions are not keeping up with generator retirements and demand growth,” the LTRA noted.
The Southwest Power Pool and New England region face an elevated risk, with energy shortfalls possible under extreme conditions beginning in 2025 and 2026, respectively. There are natural gas supply risks in each area, and SPP also faces potential shortfalls if wind generation falls below expectations.
In November, NERC warned that it is concerned about the potential for freezing temperatures to impact delivery of natural gas to power plants this winter.
PJM Interconnection faces elevated risks beginning in 2026. “Resource additions are not keeping up with generator retirements and demand growth,” the LTRA said. “Winter seasons replace summer as the higher-risk periods due to generator performance and fuel supply issues.”
In the Electric Reliability Council of Texas footprint, “surging load growth is driving resource adequacy concerns as the share of dispatchable resources in the mix struggles to keep pace,” NERC said. “Extreme winter weather has the potential to cause the most severe load-loss events.”
“We’re seeing demand growth like we haven’t seen in decades,” said John Moura, NERC’s director of reliability assessment and planning analysis. “Simply put, our infrastructure is not being built fast enough to keep up with the rising demand. So we’re here at a moment where collaboration, urgency and foresight are really non-negotiable.”
The “explosive” demand growth is being driven by new data centers, building and transportation electrification and other large commercial and industrial loads, such as new manufacturing facilities and hydrogen fuel plants, NERC said.
The Electric Power Supply Association, which represents merchant generators, called for policies that support competitive markets in order to meet the rising demand.
“Relying on the integrated resource planning used by utilities and the business model of the last century is no way to meet the moment,” EPSA President and CEO Todd Snitchler said in a statement. “Competitive markets remain the best vehicle to ensure reliability during this transformational period.”
America’s Power, which represents various industries involved in coal-fired power generation, said its analysis indicates utilities plan to retire almost 60,000 MW of coal capacity by the end of 2029 — and the retirements will happen alongside a 128,000 MW rise in demand.
“Fortunately, utilities are already postponing the retirement of power plants in some regions of the country, but utilities in other regions need to follow this trend,” America’s Power President and CEO Michelle Bloodworth said. “With electricity demand exploding due to electrification, data centers, and industrial growth, something has to give, or we will damage our economy and leave Americans without electricity.”
The National Mining Association, which represents coal producers, said “the grid reliability math isn’t adding up.”
“An increasingly dangerous situation will be untenable without a sharp change in policy,” NMA President and CEO Rich Nolan said in a statement. “Surging electricity demand is colliding with an unworkable regulatory agenda that is producing self-imposed scarcity, undermining affordability and reliability.”
NMA called on the incoming Trump administration to pursue a regulatory agenda that “addresses this unfolding electricity supply crisis.”
NRECA’s Matheson sent a letter to Trump on Dec. 4 supporting policies that “prioritize investment in American energy production, manufacturing and infrastructure … We urge you to take a coordinated approach which ensures that energy projects can be built efficiently, effectively, and at reasonable cost.”
Trump said he wants to expedite federal permits and environmental reviews for construction projects worth more than $1 billion. Many infrastructure megaprojects — in particular energy projects — fall in that price range.
NERC’s long-term assessment “points directly to the need for a pro-energy policy agenda that prioritizes reliability and affordability,” Matheson said in a statement. “We urge President Trump and congressional leaders to prioritize reliability right out of the gate next year before it’s too late.”
Shift to ‘multivalue projects’ spurred bigger grid investments – MISO president
Ronnie Turner • Commodity Insights
Monday, December 16, 2024 1:14 PM CT
Changing the objective of regional transmission planning from minimizing investments to maximizing value for consumers was key to the Midcontinent ISO advancing its efforts as other multistate grid operators have struggled, outgoing MISO President and COO Clair Moeller said in an interview with S&P Global Commodity Insights.
Moeller, who will retire Dec. 31, said that he considers the defining moment of his 20-plus-year tenure with MISO to be the work he did on the grid operator’s first “multivalue projects” portfolio in 2011. Multivalue projects (MVP) are large, regional transmission projects that provide broad, long-term benefits that do more than meet local reliability and growth needs.
Moeller said MISO set its course for the 2011 MVP portfolio with its board planning principles in 2006, and the work done since has helped create a sea change in messaging on the value of transmission amid the energy transition.
“Traditionally regulated, vertically integrated utilities’ transmission plans’ objectives were to minimize the cost of transmission to deliver that utility’s generation to that utility’s load,” said Moeller, who worked at Midwestern utility Xcel Energy Inc. for 25 years before joining MISO in 2004.
“Beginning with the multivalue projects in 2011, we flipped the objective function from minimizing investment to maximizing value for consumers. And we were able to bring the states along with us in that regard,” Moeller said. “So rather than the Balkanized planning that 60 years of history would have given us, we changed the objective to say, ‘Can we make a bigger investment to make people’s bills go down and walk away from the cartoon that says minimizing investment is how you keep people’s bills down?'”
Perhaps it’s fitting that MISO signed off on its largest portfolio of multivalue projects in the final days of Moeller’s tenure.
The board unanimously voted Dec. 12 to approve its $30 billion 2024 Transmission Expansion Plan, the largest investment in MISO history and what it also considers the biggest grid investment in US history. The so-called MTEP24 plan also includes Tranche 2.1 of MISO’s long-range transmission planning, which consists of 24 projects within the grid operator’s Midwest subregion that are estimated to cost $21.8 billion total.
MISO estimates that Tranche 2.1 could provide a regional benefit-to-cost ratio between 1.8 and 3.5 for the total portfolio over the first 20 years of transmission in-service life and could ultimately produce net benefits exceeding $72 billion, according to the MTEP24 executive summary.
The Tranche 2.1 projects fall under the MVP umbrella and follow the $10.5 billion Tranche 1, a portfolio of 18 new projects in MISO Midwest that was approved by the board in July 2022. MISO has proposed to develop the long-range transmission planning projects in four tranches estimated to exceed $100 billion in total costs.
Moeller said one can see the philosophy underpinning the 2011 MVP portfolio “repeat itself in Tranche 1 and Tranche 2.”
“You can see that as people gain confidence in the answer, it’s easier to repeat,” Moeller said.
MTEP24 also includes a first-of-its kind collaboration between MISO and neighboring Southwest Power Pool to jointly develop a portfolio of transmission projects along the seams of their respective regions. The proposed $1.8 billion Joint Targeted Interconnection Queue (JTIQ) portfolio No. 1 envisions construction of five transmission projects across seven Midwest states that could enable at least 28 GW of new generation while addressing issues hindering interconnection in these regions.
Moeller said the other regional grid operators will be closely watching the progress MISO and SPP make on JTIQ as they ponder similar collaborations.
“An important thing is actually executing the first one so we can build some momentum,” Moeller said. “The best thing we can do in terms of increasing things like JTIQ is actually get some steel in the ground that represents the projects that the generation interconnection process advocates. And many of these things take a long time, right? The [first] multivalue projects were approved in 2011, [but] we finally got the last one done this year.”
Seventeen transmission projects were approved in the 2011 portfolio. The final segment of the last of the 17 projects, the 345-kV Cardinal-Hickory Creek line in Wisconsin and Iowa, was completed and entered service in September. In its most recent analysis, MISO tallied the aggregate cost of the projects at about $6.6 billion, $1 billion more than initial approved costs.
MISO’s continued progress on these fronts ultimately comes back to the shift in transmission planning philosophy that occurred with the 2011 MVP portfolio, Moeller said. “When we flipped the objective function of transmission, to maximize value for consumers rather than minimize investment, that changed everything,” he said. “And that’s why we at MISO are accomplishing these transmission investments where other regions are struggling.”
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
GE Vernova expects $45B revenue by 2028 from gas turbine, grid equipment orders
Allison Good • Commodity Insights
Wednesday, December 11, 2024 11:17 AM CT
GE Vernova Inc. expects to earn $45 billion in revenue and generate $14 billion of free cash flow by 2028 as orders for power and electrification equipment to accommodate unprecedented US load growth materialize.
“The markets are accelerating and very much coming our way,” CEO Scott Strazik told analysts and investors during a Dec. 10 conference call. “We’re already into selling the last of our slots for gas in 2028 right now. We’re already selling transformers and switch gears into 2028 and 2029 very quickly with the market opportunity in front of us.”
GE Vernova anticipates booking 20 GW of new gas turbine orders globally in 2024, up from 11 GW in 2023. But the 9 GW of US slot reservation agreements the company has inked in the last month via cash contracts and fixed prices are “the best indicators yet in what will be our gas orders book serving the hyperscaler demand associated with AI,” Strazik said.
While datacenter power demand will not “cut into gas orders” until summer 2025, GE Vernova is already getting paid by those customers “as a bridge to secure those slots,” the CEO added.
GE Vernova’s “conservative” 2028 outlook does not completely capture the upside from increasing gas generation costs, analysts at Jefferies wrote in a Dec. 11 note.
“Inflation in gas turbine pricing remains a persistent trend and we are not convinced we have seen the top of it,” they said.
On the electrification side, however, GE Vernova is not responding to orders by immediately increasing capacity.
“There are very healthy discussions right now on how we continue to expand capacity and grow into it, but at the same time, we want to be thoughtful about how we manage that,” Strazik said. “This is a chess match, and it’s a chess match for a business that hasn’t seen this amount of organic growth.”
The company also raised 2025 free cash flow guidance from a range of $1.2 billion to $1.8 billion to a range of $2 billion to $2.5 billion, and announced that the board approved a $6 billion stock buyback program.
Analysts at Guggenheim, however, noted in a Dec. 11 report that GE Vernova’s outlook for its wind segment, where the company expects to see a $200 million to $400 million 2025 EBITDA loss, “was worse than we had expected” for both the onshore and offshore business.
“There’s a pipeline of onshore wind [high-voltage, direct-current] projects that are progressing, but they’re not turning into orders right now, and I don’t think they’re about to,” Strazik said. “It’s not like the projects are going away, but in comparison to every other part of GE Vernova where the customers are really banging down the door, we’re not experiencing that at all.”
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.